Moody v. Security Pacific Business Credit, Inc.

Jeannette Corporation (debtor) manufactured glass housewares profitably for decades. In 1978, Coca-Cola Bottling Company acquired Jeannette for $39.6 million. An appraisal valued Jeannette’s property, plant, and equipment at $29 million. After Coca-Cola invested another $11 million, Jeannette broke even for 1980 and projected $500,000 profit for 1981. However, Coca-Cola wanted to focus on bottling and agreed to sell Jeannette to an investor group headed by John Brogan for $12.1 million conditioned on closing in nine days. Security Pacific Business Credit Inc. (Security Pacific) (plaintiff) extended Jeannette a $15.5 million line of credit to provide working capital and forwarded $11.7 million to J. Corp., which was formed solely to acquire Jeannette. Jeannette received new management and the line of credit. Jeannette was profitable for the next six months, but in 1982 the domestic glassware market shrank because of foreign competition and recession. Creditors filed an involuntary bankruptcy against Jeannette in October 1982. Over 90 percent of the proof of claims accrued in the three months before filing, with none from before the leveraged buyout. Bankruptcy trustee James Moody (plaintiff) sued Security Pacific, Coca-Cola, J. Corp., Brogan, and others (defendants) challenging the buyout as a fraudulent conveyance. The district court valued Jeannette as a going concern at buyout, concluded it remained solvent and adequately capitalized, and entered judgment against the trustee. The trustee appealed.